What Are Redundancy Entitlements?

Big or small, all businesses may undergo changes – whether it be in size, structure, operations, or something else. While this may result in improvements and better outcomes for your business, it could also lead to some tough calls. 

Introducing new technology or machinery, changing locations or restructuring your business may result in an employee’s role becoming redundant. 

As an employer, it is important to know what your obligations are if you are looking to make your employees redundant. This article will take you through what your employees are entitled to when they are made redundant.

When Is A Redundancy A Genuine Redundancy?

An employee may be made redundant in two scenarios:

1. When their employer no longer needs the employee’s job to be done
2. When their employer becomes insolvent or bankrupt

The Employment Relations Act 2000 in New Zealand defines “genuine redundancy” as:

Before you make someone redundant, you should make sure that the employee’s job doesn’t need to be done by someone else and you have followed the appropriate consultation processes required by the employment agreement. 

What Is Not A Genuine Redundancy? 

A dismissal will not be a genuine redundancy in the following circumstances:

• The job or role performed by the employee made redundant still needs to be done by someone. For example, you hire someone else to complete their job.
• You haven’t followed the relevant consultation requirements provided for by the employment agreement.
• It would have been reasonable to redeploy or relocate the employee to another job within your business.

It’s important to follow fair processes when making an employee redundant and ensure that any redundancy is a genuine redundancy. If not, the employee made redundant may take legal action against you for an unfair dismissal. If you find yourself in this situation, it is best to seek advice about what your options are from a lawyer.

What Is A Consultation Requirement?

Employment agreements and other registered agreements provide for certain consultation processes to be followed where a business undergoes major changes, particularly if they are likely to result in redundancies. As a business owner, you should carry out these consultation processes as soon as possible after you decide to make these changes.

Consultation requirements may include:

• Notifying any employee who may be affected by the proposed changes 
• Providing your employees with information about what kinds of changes your business will be making and the potential effects they have on their employment 
• Having discussions with your employees about the actions that can be taken to avoid or minimise any negative consequences the changes may have on their employment
• Considering any ideas or suggestions your employees have in relation to the changes

Notice Of Termination

Most employees in New Zealand will be covered by the Employment Relations Act 2000. This is in addition to any other award, agreement or contract. 

For all permanent employees (that is, permanent part-time and full-time employees, but not casual employees), the Act sets out the minimum notice periods, or payment in lieu of notice, that an employer must give to an employee when ending employment. In addition to this, the Act outlines the redundancy compensation employees are entitled to at the end of their employment. 

Under the Act, you will not able to dismiss an employee without either:

• Providing them with the minimum period of notice; or
• Paying them in lieu of notice. This payment is equal to what the employee would normally be entitled to if they had worked the minimum notice period.

In most cases, you will need to give notice in writing. So, it is best practice to provide your employee with a letter stating their last day of employment in line with the notice period. 

The minimum notice period an employee is entitled to is determined in accordance with how long they have been an employee:

Period of continuous service on termination	Minimum notice period
1 year or less	1 week
Between 1-3 years	2 weeks
Between 3-5 years	3 weeks
5 years or more	4 weeks

Note: If your employee is over 45 years old and has completed at least 2 years of service, they may be entitled to additional notice under certain conditions.

There are certain situations in which you will not need to provide any notice of termination to an employee, such as where:

• your employees are casual employees
• your employees have been employed for a specified period of time, task or season (such as with employees on a fixed-term contract or seasonal workers)
• you are firing an employee for serious misconduct

How Much Redundancy Compensation Do I Need To Pay?

Employees facing genuine redundancy are entitled to receive redundancy compensation. The amount they are entitled to will depend on their continuous period of service with you, and is paid at their base pay rate for ordinary hours worked. As such, redundancy compensation does not include any incentive-based payments and bonuses, loading, allowances, overtime or penalty rates.

Period of continuous service on redundancy	Redundancy compensation
Less than one year	Nil
Between 1-2 years	4 weeks
Between 2-3 years	6 weeks
Between 3-4 years	7 weeks
Between 4-5 years	8 weeks
Between 5-6 years	10 weeks
Between 6-7 years	11 weeks
Between 7-8 years	13 weeks
Between 8-9 years	14 weeks
Between 9-10 years	16 weeks
10 years or more	12 weeks

Who Doesn’t Get Redundancy Compensation?

Some employees won’t be entitled to redundancy compensation if their job is made redundant. You will not need to give redundancy compensation to any employees you have made redundant if:

• They have less than 12 months of continuous service
• They have been employed for a specified period of time, season, task or project
• They are casual employees
• They are an apprentice or trainee

There are also some additional scenarios where you will not need to pay redundancy compensation if you are a small business. 

Do Small Businesses Need To Pay Redundancy Compensation?

Most small businesses won’t have to. But certain industries will require even small businesses to pay redundancy under the relevant employment agreements. 

Are you a small business? Small businesses are businesses that employ less than 20 employees. Employees include all permanent part-time and full-time employees employed at the time of the redundancy. 

Casual employees are not counted unless they are employed on a regular and systematic basis.

Employment Agreements

Some employment agreements create an obligation for small businesses to pay their employees redundancy compensation. These include:

• Employment agreements specific to certain industries or sectors

You can use the Employment New Zealand’s Redundancy Payments page to work out if, and how much, you need to pay your employees if you make them redundant. 

What If An Employee Brings An Unfair Dismissal Claim Against Me?

Generally speaking, if a redundancy is a genuine redundancy, then you will be in a good position to defend an unfair dismissal claim brought against you.

It is a good idea to keep written records of the processes taken when you have made an employee redundant, as they may assist in proving that you have treated the employee fairly.

If you are facing an unfair dismissal claim, it is always best to seek professional legal advice that is specific to your circumstances.

Need Help?

If you’re looking for advice around taking care of your employees when your business encounters change, speaking to a lawyer will help you explore your options and make sure you are meeting your obligations as an employer. 
Get in touch with our team of expert lawyers ​​on 0800 002 184 or [email protected] for a free no-obligations consult.

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